The NCLAT, New Delhi Bench has opined the importance of following the correct legal procedures and adhering to statutory frameworks in matters related to insolvency and bankruptcy. It underscores the need for a consistent application of the law, especially when imposing penalties and prosecuting individuals under the Insolvency and Bankruptcy Code.
Brief Facts:
The case revolves around a dispute involving Mr. Rahul Gupta and Ms. Divya Gupta (the Appellants) and Mr. Chandra Prakash (the Respondent), who serves as the Liquidator of M/s Gem Batteries Pvt. Ltd., a corporate debtor. The case originated from an application filed under Section 7 of the Insolvency and Bankruptcy Code by RBL Bank, a financial creditor, leading to the initiation of the Corporate Insolvency Resolution Process (CIRP) for M/s Gem Batteries Pvt. Ltd. The Respondent was appointed as the Interim Resolution Professional during the CIRP. Allegations were made that the Appellants failed to cooperate with the Respondent and provide the necessary documents and information regarding the corporate debtor.
In response, the Respondent filed an application (I.A. 1678 of 2021) under Section 19(2) and Section 19(3) of the Insolvency and Bankruptcy Code seeking directions from the Adjudicating Authority (National Company Law Tribunal). The Adjudicating Authority ordered the Appellants to provide the requested information and documents to the Respondent, and compliance affidavits were also required. When the Appellants failed to comply, the Adjudicating Authority imposed a penalty of Rs. 10,00,000 on each of them under Section 70 of the Insolvency and Bankruptcy Code, which deals with offenses and penalties.
The Appellants filed an appeal against this order, arguing that the Adjudicating Authority lacked jurisdiction to impose such a penalty under Section 70. They contended that Section 236 of the Code required a specific procedure for initiating prosecutions under Section 70, and the Adjudicating Authority had ignored relevant precedents. The Respondent, on the other hand, defended the Adjudicating Authority's decision, asserting that it was a legitimate response to the Appellants' repeated non-compliance and lack of cooperation during the CIRP.
Observation by the Court:
The court observed that the Adjudicating Authority had erred in passing the Impugned Order, as it had overlooked the provisions of the Insolvency and Bankruptcy Code and had not followed relevant precedents. The court noted that the Adjudicating Authority had imposed a penalty under Section 70 of the Code without following the proper legal procedure outlined in Section 236. The court also emphasized that prosecutions under Section 70 could only be initiated through the specific procedure provided in the law. As a result, the court set aside the Impugned Order and remanded the case for a fresh review in compliance with the law.
The decision of the court:
The court decided to set aside the Impugned Order and remand the case for a fresh review by the National Company Law Tribunal, New Delhi Bench, Court-III, in accordance with the law. The court directed the Appellants and the Respondent to appear before the NCLT on a specific date and did not award any costs in this matter.
Case Title: Mr. Rahul Gupta, Ms. Divya Gupta Vs. Chandra Prakash
Case no.: CA (AT) (Insolvency) No. 966 of 2022
Coram: Justice Anant Bijay Singh - Member (Judicial), Mr. Naresh Salecha - Member (Technical)
Advocates For Appellants: Mr. Abhishek Anand,Mr. Sajal Jain
Advocates For Respondent: Mr. Shrey Patnaik, Mr. Riturik Batra
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